The  Present  Railroad  Situation 


BY 

SAMUEL  M.  FELTON 

President  of  the  Chicago  Great  Western  Railroad  Company 
Chairman  Sub  - Committee  Western  Classification  Territory 


An  Address 

Delivered  Before  the  Chamber  of  Commerce 
of  Kansas  City,  at  Kansas  City,  Mo. 
cn  fane  30,  1920 


Digitized  by  the  Internet  Archive 
in  2015 


https://archive.org/details/presentrailroadsOOfelt 


Jl 16  iy ^2 


THE  PRESENT  RAILROAD  SITUATION 


By  SAMUEL  M.  FELTON 

I am  glad  of  this  opportunity  to  come  here  and  talk  to 
you  about  the  railroad  situation.  If  ever  there  was  a time 
when  the  welfare  of  the  public  imperatively  demanded  that 
the  railroad  situation  should  he  fully  and  frankly  discussed, 
that  time  is  now.  It  will  he  possible  in  the  time  at  my  dis- 
posal to  touch  upon  only  a few  features,  and  I intend 
to  deal  chiefly,  first  with  the  conditions  affecting  the  move- 
ment of  commerce  which  have  existed  since  the  railways 
were  returned  to  their  owners,  about  which  there  seems  to 
be  much  misunderstanding,  and,  secondly,  with  the  reasons 
why  the  railways  must  be  given  an  opportunity  to  earn  ade- 
quate net  returns  if  any  progress  is  to  be  made  in  solving 
the  general  railroad  problem. 

It  is  just  four  months  since  the  railways  were  returned 
to  private  control  after  twenty-six  months  of  government 
operation.  These  four  months  have  been  a period  of  tur- 
moil and  stress  in  the  railroad  business.  When  the  roads 
were  returned  the  public  was  greatly  dissatisfied  with  the 
results  of  government  management,  and  more  friendly  to 
private  management,  than  ever  before. 

In  consequence  of  developments  which  have  occurred,  or 
which  are  alleged  to  have  occurred,  since  private  operation 
was  resumed,  the  managements  of  the  companies  already 
are  being  subjected  to  bitter  criticism  by  persons  and  news- 
papers who  are  in  favor  of  government  management,  or 
of  employes’  management  under  the  Plumb  plan.  While 
these  attacks  are  unjust,  they  cannot  safely  be  ignored. 
The  question  of  what  advances  in  rates,  and  wliat  increases 
in  net  operating  income,  shall  be  granted  to  the  railways  is 
now  under  consideration  by  the  Interstate  Commerce  Com- 
mission. The  future  success  of  private  management  of  rail- 
roads, and  even  whether  private  management  will  endure  at 
all,  will  be  largely  determined  by  the  decision  of  the  Com- 


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mission  in  these  rate  cases  and  by  the  way  in  which  its  de- 
cision is  received  by  the  public.  Since  every  attack  which 
is  made  upon  private  management  is  likely  more  or  less  to 
influence  public  opinion,  I shall  make  no  apology  for  using 
some  of  the  attacks  which  are  being  made  upon  it  now  as  a 
basis  for  the  discussion  of  recent  developments  in  the  rail-1 
road  field  and  the  present  situation. 

CRITICISMS  OF  PRIVATE  MANAGEMENT 

The  character  of  these  attacks  is  illustrated  by  certain 
statements  which  a former  prominent  government  official 
is  quoted  as  having  made  in  a recent  address.  He  said, 
in  substance,  that  during  the  war  the  railways  had  “broken 
down,”  that  the  government  had  to  assume  their  operation 
to  keep  the  country’s  commerce  moving,  that  within  a few 
months  the  government  had  the  railways  running  efficiently, 
and  that  it  continued  to  run  them  efficiently  until  they  were 
restored  to  private  operation.  Now,  he  alleged,  after  they 
have  been  back  in  the  hands  of  the  companies  only  a fe\V 
months  they  are  again  “broken  down. ’ ’ 

These  allegations  as  to  what  occurred  before  the  govern- 
ment took  the  roads  and  as  to  what  has  occurred  since  it 
returned  them,  are  equally  untrue.  In  1917,  the  last  year 
before  government  operation,  the  railways  moved  a 
much  larger  traffic  than  ever  before,  and  continued  to 
do  so  until  the  very  day  government  operation  was 
adopted.  The  Railroad  Administration  had  power  to 
do  many  things  which  the  private  companies  previ- 
ously were  forbidden  by  law  to  do.  It  could,  and  did, 
disregard  shippers’  routing  of  freight,  pool  the  traffic  and 
facilities  of  the  railways,  and  abolish  the  preference  orders 
for  the  movement  of  freight  by  which  the  railways  were 
literally  overwhelmed  by  the  government  departments  in 
the  last  months  of  private  operation.  Did  the  government, 
with  all  of  its  opportunities  and  power,  increase  the  amount 
of  traffic  handled  anywhere  near  as  much  in  proportion  as 


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the  private  managements  had  been  increasing  it?  In  the 
last  two  years  of  private  operation  the  railway  companies 
increased  the  freight  handled  40  per  cent.  The  increase  in 
the  freight  handled  in  1918,  under  government  operation, 
was  less  than  2 per  cent,  and  in  1919  the  amount  of  freight 
handled  was  much  less  than  it  had  been  under  private 
operation.  If  ever  the  effects  of  the  so-called  “breakdown”' 
under  private  operation  would  have  been  plainly  mani- 
fested, this  surely  would  have  been  in  the  last  two  months 
of  1917,  just  before  the  government  took  the  railways  over. 
In  those  months  the  railways  had  to  fight  the  worst  weather 
conditions  ever  known.  On  the  other  hand,  in  November 
and  December,  1918,  the  business  offered  to  the  railways 
under  government  operation  was  the  largest  ever  known, 
and  weather  conditions  were  exceptionally  favorable.  Now, 
in  the  months  of  November  and  December,  1918,  the  number 
of  tons  of  freight  moved  one  mile  under  government  opera- 
tion was  69,193,000,000,  while  in  the  last  two  months  of  1917, 
under  private  operation,  it  was  68,365,000,000,  or  barely  1.2 
per  cent  less. 

In  view  of  these  facts,  it  is  amazing  for  an  advocate  of 
government  operation  to  assert  that  under  private  opera- 
tion the  railways  “broke  down,”  while  under  government 
operation  they  were  raised  to  a high  plane  of  efficiency. 

THE  AFTERMATH  OF  GOVERNMENT  CONTROL 

With  respect  to  developments  since  the  railways  were  re- 
turned to  their  owners,  it  must  be  admitted  that  they  have 
been  unsatisfactory  to  both  the  railway  managements  and 
the  public.  But  consider  for  a moment  the  conditions  that 
existed  when  the  railways  were  returned.  The  government 
had  followed  a policy  which  many  people  at  one  time,  be- 
lieved would  render  it  impossible  ever  to  return  the  rail- 
ways to  private  operation.  The  official  organizations  of 
many  roads  were  disrupted.  Traffic  was  diverted  from  its 
normal  channels.  Freight  cars  were  pooled  and  the  cars 


5 


of  the  various  railways  were  scattered  all  over  the  country, 
so  that  even  today  the  railways  have  upon  their  own  lines 
only  a small  percentage  of  their  own  cars.  Not  a single  pas- 
senger car  was  bought  during  the  more  than  two  years  of 
government  operation.  About  as  many  freight  cars  and  loco- 
motives were  bought  as  had  ordinarily  been  scrapped  by  the 
railways  in  a single  year.  Kepairs  of  freight  cars  were  so 
inadequately  done  that  when  the  roads  were  returned  an 
abnormally  large  number  of  freight  cars  were  in  bad  order. 
The  number  of  new  rails  and  ties  laid  in  the  tracks  was 
abnormally  small.  While  the  eight-hour  day  was  estab- 
lished and  advances  in  wages  amounting  to  over  $1,200,- 
000,000  a year  were  made,  railway  labor  conditions  were 
not  improved,  but  made  much  worse.  For  several  months 
before  the  roads  were  returned  the  employes  were  demand- 
ing vast  additional  advances  in  wages.  The  government  did 
not  definitely  grant  or  refuse  these,  thus  greatly  aggravat- 
ing the  dissatisfaction  and  unrest  among  the  employes. 
Operating  expenses  increased  enormously  while  no  cor- 
responding advances  in  rates  were  made,  with  the  result 
that  when  the  railways  were  handed  back  to  their  owners 
their  net  operating  income  had  been  practically  wiped  out. 
In  February,  the  last  month  of  government  operation,  the 
railways  failed  by  about  $12,000,000  to  earn  enough  to  pay 
their  operating  expenses  and  taxes. 

In  addition  to  all  these  things,  there  had  been  a strike 
in  the  coal  mines  in  November  and  December,  1919.  The 
accumulated  fuel  supplies  of  the  country  had  been  enor- 
mously reduced,  resulting  in  great  increases  in  the  demands 
upon  the  railroads  for  transportation.  The  other  kinds  of 
traffic  demanding  movement  also  were  larger  than  ever  be- 
fore. The  Transportation  Act  was  passed  only  a week  be- 
fore the  railways  were  returned.  Therefore,  almost  np  to 
the  day  that  they  were  returned  there  was  such  uncer- 
tainty as  to  their  future  that  the  managements  of  the  com- 
panies could  take  hardly  any  important  steps  to  provide  for 
the  resumption  of  their  operation. 


6 


A COMPLEX  AND  DIFFICULT  PROBLEM 

If  there  had  existed  no  conditions  except  those  I have 
mentioned  to  render  enormously  complex  and  difficult  the 
problem  presented  to  the  managements  during  the  months 
immediately  following  the  resumption  of  private  operation, 
the  conditions  I have  mentioned  would  have  presented  a 
problem  sufficient  to  tax  their  energy  and  ability  to  the  ut- 
most. In  the  latter  part  of  March,  however,  less  than  a 
month  after  the  roads  were  returned,  there  began  a series 
of  sporadic  strikes  on  the  railways  in  all  parts  of  the  coun- 
try. These  were  “outlaw”  strikes  begun  because  of  dis- 
content created  under  government  control. 

The  demands  which  the  employes  had  before  the 
Eailroad  Administration  for  months  were  then  under  con- 
sideration by  the  Eailroad  Labor  Board,  a government  body 
which  had  been  created  by  the  Transportation  Act  to  settle 
railway  wage  controversies.  Since  the  railway  companies 
could  not  have  granted  the  demands  of  the  employes  with- 
out practically  disregarding  the  provisions  of  the  Trans- 
portation Act,  and  since  the  strikes  came  in  less  than  a 
month  after  private  operation  was  resumed,  it  is  obvious 
that  private  operation  should  not  be  held  responsible  for 
the  results  produced  by  these  strikes. 

INCREASE  IN  FREIGHT  HANDLED 

Many  persons,  howTever,  seem  to  think,  and  some  charge, 
that  the  railway  companies  have  failed  to  meet  adequately 
the  situation  created  by  the  strikes  and  by  the  other  con- 
ditions which  they  inherited  from  government  management. 
Many  seem  to  think,  and  some  charge,  that  the  serious  in- 
dustrial and  financial  conditions  which  developed  were  due 
to  the  fact  that  there  was  an  enormous  reduction  in  the 
amount  of  freight  handled  by  the  railways.  As  a matter  of 
fact,  in  spite  of  all  the  adverse  conditions  with  which  they 
have  had  to  contend  the  railways,  even  since  the  strikes  be- 
gan, have  moved  more  business  than  they  did  in  the  same 

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weeks  of  last  year.  Reports  made  to  the  American  Rail- 
road Association  by  a very  large  majority  of  the  railways 
of  the  country  show  that  between  March  21  and  June  12, 
1920,  which  includes  the  period  of  the  strikes,  the  numbef 
of  cars  of  freight  moved  by  these  roads  was  8,264,485,  as 
compared  with  only  7,708,927  during  the  same  weeks  of  last 
year,  an  increase  of  555,518  carloads.  In  the  week  ended 
June  12  the  number  of  carloads  of  freight  handled  by  these 
roads  was  754,857  as  compared  with  726,176  last  year,  or 
an  increase  in  that  week  of  almost  69,000. 

With  respect  to  coal,  the  statistics  of  the  United  States 
Geological  Survey  show  that  up  to  June  12  the  railways  had 
transported  39,000,000  tons  more  than  they  did  during  the 
same  period  of  last  year.  Why,  then,  are  there  complaints 
of  a serious  coal  shortage  all  over  the  country?  Chiefly  be- 
cause the  country’s  coal  supplies  were  enormously  depleted 
by  the  coal  mine  strike  last  November  and  December,  and 
that  it  has  never  been  possible  to  offset  this  depletion  of 
the  supplies. 

It  seems  to  me  the  facts  I have  presented  afford  a con- 
clusive answer  to  the  propaganda  which  is  being  carried  on 
to  show  that  the  railway  managements,  since  private  opera- 
tion was  resumed,  have  not  solved  as  efficiently  as  could  be 
reasonably  expected  the  extremely  difficult  problem  pre- 
sented to  them — a problem  which  is  largely  a heritage  from 
government  operation.  In  fact,  I think  they  show  that,' 
considering  all  the  conditions,  the  railway  managements 
have  been  doing  much  better  than  might  reasonably  have 
been  expected. 

It  is,  however,  far  from  my  purpose  to  imply  that  the 
problem  confronting  the  railway  companies  and  the  pub- 
lic is  solved,  or  anywhere  near  solved.  Unfortunately,  it 
is  far  from  solved  and  it  will  take  not  merely  months,  but 
years,  of  good  understanding  and  close  co-operation  be- 
tween the  railway  managements,  the  railway  regulating  au- 
thorities and  the  public  to  solve  it  in  a way  that  will  be  bene- 
ficial and  satisfactory  to  all. 


8 


INADEQUACY  OF  TRANSPORTATION  LIMITS  PRODUCTION 

There  are  many  factors  in  the  situation  which  are  im- 
portant, hut  perhaps  the  one  which  should  give  the  most 
concern  to  the  public,  as  well  as  to  the  railway  manage- 
ments, is  the  great  inadequacy  of  the  present  facilities  of 
the  railways  to  the  demands  of  the  country’s  commerce. 

Developments  over  a period  of  years  have  shown  with 
increasing  force  and  conclusiveness  that  the  facilities  of 
the  railways  have  become  insufficient  to  handle  the  com- 
merce of  the  country.  During  the  railroad  strikes,  many 
industries  were  forced  partially  or  wholly  to  close  down: 
This  was  not  merely  because  of  the  strikes.  It  was  due  to 
the  fact  that  before  the  strikes,  even  when  the  railways  were 
operating  to  their  capacity,  they  were  not  able  to  handle 
anywhere  near  all  the  traffic  offered;  and,  of  course,  when 
the  strikes  reduced  the  amount  of  freight  they  could  handle 
the  industrial  situation  rapidly  became  acute. 

Let  us  imagine  what  the  conditions  would  soon  be  if  we 
should  go  on  increasing  the  investment  in  and  the  capacity 
of  our  other  industries  without  largely  increasing  the  invest- 
ment in  and  the  capacity  of  the  railways.  The  amount  of 
traffic  which  the  industries  would  offer  to  the  railways,  and 
which  they  would  be  unable  to  handle,  would  grow  larger 
and  larger.  This  inability  of  the  railways  to  handle  addi- 
tional business  would  more  and  more  drastically  limit  the 
increase  of  production.  But  without  an  increase  of  produce 
tion  in  the  industries  in  which  increased  investment  is  being 
made  it  would  become  impossible  to  earn  any  return  upon 
the  increased  investment  in  them.  This  would  inevitably 
result  in  financial  disaster  to  these  industries  and  to  the 
country.  Every  day  that  the  nation,  or  those  who  represent 
it  in  governmental  affairs,  delays  to  adopt  the  measures 
necessary  to  enable  the  railroads  to  expand  their  facilities; 
we  are  courting  disaster. 

Congress,  in  drafting  and  passing  the  Transportation 
Act,  had  these  facts  and  dangers  of  the  situation  more  oi 
less  clearly  in  mind.  Therefore,  it  put  into  the  law  a pro- 


9 


vision  directing  the  Interstate  Commerce  Commission,  in 
regulating  rates,  to  give  consideration  to  the  need  of  the 
country  for  adequate  transportation  facilities. 

The  railways  have  suggested  to  the  Interstate  Commerce 
Commission  that  the  return  allowed  to  be  earned  by  them 
should  be  6 per  cent  upon  the  basis  of  their  property  in- 
vestment as  shown  by  their  books,  first,  because  this  is  the 
only  tangible  basis  now  available  as  to  all  roads;  second, 
because  they  believe  the  valuation  of  the  railways  as  a 
whole  will  exceed  their  book  cost  as  a whole;  and,  third, 
because  they  believe  that  any  return  averaging  less  than 
6 per  cent  upon  the  book  cost  of  the  railways  as  a whole  will 
be  insufficient  to  enable  them  to  refund  the  large  amounts 
of  obligations  which  are  coming  due,  and  to  raise  anywhere 
near  the  amount  of  new  capital  that  they  must  raise  if 
they  are  to  provide  adequate  and  good  service. 

It  is  inconceivable  to  me  how  anybody  familiar  with  ex- 
isting conditions  can  doubt  the  necessity  of  the  Interstate 
Commerce  Commission  so  fixing  the  rates  as  to  enable  the 
railways  to  earn  an  average  of  6 per  cent.  Judge  C.  A. 
Prouty,  Director  of  Valuation  of  the  Interstate  Commerce 
Commission,  one  of  the  most  experienced  regulating  offi- 
cial in  the  United  States,  recently  indicated  his  view  upon 
this  subject  when  he  said,  in  an  address  to  the  Chicago 
Association  of  Commerce,  “Will  any  sane  person  contend 
that  for  the  next  two  years  6 per  cent  is  too  great  a re- 
turn ? ’ ’ 

And  in  that  same  connection,  Judge  Prouty  said  to  the 
business  men  of  the  country:  “Your  first  and  most  im- 
portant duty  is  to  see  that  these  carriers  are  allowed  ade- 
quate rates.  * * * Without  proper  facilities,  a suitable 

road,  adequate  equipment,  the  service  which  you  require 
cannot  be  adequately  performed.” 

ADVANCES  IN  RATES  IN  OTHER  COUNTRIES 

While  the  advances  in  rates  which  will  have  to  be  made 
to  put  the  railways  on  their  feet  will  be  large,  they  will  be 


10 


not  nearly  as  large  as  those  which  have  been  made  in  some 
other  countries.  The  railways  of  Great  Britain  advanced 
their  passenger  rates  50  per  cent  during  the  war.  Re- 
cently they  have  advanced  the  freight  rates  from  25  to  100 
per  cent,  and  the  demurrage  charges  from  100  to  200  per 
cent.  The  Italian  government  railways  have  advanced 
their  passenger  rates  60  to  120  per  cent  and  their  freight 
rates  40  to  100  per  cent.  The  Swiss  government  railways' 
have  advanced  passenger  fares  100  per  cent  and  freight 
rates  180  per  cent.  Passenger  rates  of  the  French  railways 
have  been  advanced  70  to  80  per  cent,  and  their  freight  rates 
120  per  cent.  In  Belgium  both  passenger  and  freight  rates 
have  been  increased  by  the  government  railways  100  per 
cent.  The  total  increases  in  passenger  fares  in  Austria 
have  been  290  per  cent,  and  in  freight  rates  390  per  cent. 
In  Germany  the  advances  in  passenger  rates  have  averaged 
about  700  per  cent,  the  increase  in  the  first-class  rate  being 
825  per  cent,  in  the  second  class  rate  650  per  cent,  and  in  the 
third  class  rate  590  per  cent.  Freight  rates  of  the  German 
railways  have  been  advanced  800  per  cent  since  pre-war 
times. 

The  fact  should  not  he  overlooked  that  it  is  not  the  fault 
of  the  railway  companies  that  they  will  require  a very  large 
advance  in  rates  to  put  them  on  a 6 per  cent  basis. 

The  present  wide  disparity  between  the  income  and  outgo 
of  the  railways  of  the  United  States,  which  makes  necessary 
large  advances  in  rates  here,  was  created  under  government 
operation,  when  the  increases  which  occurred  in  operating 
expenses  greatly  exceeded  the  advances  which  were  made 
in  the  rates. 

WESTERN  RAILWAYS  MUST  BE  EXPANDED 

While  it  is  necessary  in  the  public  interest  that  railway 
rates  shall  he  made  adequate  in  all  parts  of  the  country,  it 
is  peculiarly  essential  that  this  shall  he  done  in  western 
territory.  This  territory  needs  much  more  extensive  rail- 
way facilities  for  the  transportation  of  the  commodities 


li 


that  it  is  already  producing.  The  lumber  manufacturer^ 
oi:  the  Northwest  are  finding  that  their  business  is  being 
severely  restricted  by  their  inability  to  ship  all  the  prod- 
ucts which  their  mills  are  capable  of  turning  out.  There 
are  hundreds  of  millions  of  bushels  of  grain  being  held  on 
the  farms  and  in  the  elevators  of  the  West  because  the  rail- 
ways have  been  unable  to  haul  it  away.  All  classes  of  pro- 
ducers are  finding  their  operations  are  being  limited  by 
insufficient  transportation. 

The  West  also  needs  the  construction  of  many  thousands 
of  miles  of  new  railway  lines  to  open  up  extensive  terri- 
tories which  are  now  undeveloped.  In  the  year  1917  there 
were  only  two  states  east  of  the  Mississippi  River  and 
north  of  the  Ohio  that  had  less  than  12  miles  of  railway  for 
each  100  square  miles  of  area.  In  that  same  year  there 
were  only  two  states  west  of  the  Mississippi,  viz.,  Iowa  and 
Wisconsin,  which  had  as  much  as  12  miles  of  railway  for 
each  100  square  miles  of  area. 

And  yet,  within  recent  years,  the  growth  of  the  railroads 
of  the  West  has  practically  stopped,  and  in  several  states 
the  mileage  torn  up  or  abandoned  has  been  greater  than  the 
new  mileage  built.  It  cannot  be  regarded  otherwise  than 
as  ominous  that  in  the  newest  and  most  undeveloped  section 
of  the  United  States  the  growth  of  the  railroads  should 
temporarily  at  least,  have  been  stopped. 

The  railways  of  the  country  as  a whole  are  asking  for  an 
advance  in  freight  rates  averaging  28  per  cent.  After  it 
had  been  made' the  advances  in  freight  rates  in  this  coun- 
try since  pre-war  days  would  be  less  than  the  advances  iri 
the  prices  of  almost  any  class  of  commodities  or  in  the 
wages  of  almost  any  class  of  labor.  Under  government 
control  freight  rates  were  advanced  25  per  cent.  A further 
advance  of  28  per  cent  would  make  the  average  advance 
since  government  operation  was  adopted  about  65  per  cent. 
The  average  advance  in  amiual  wages  per  railway  employe 
since  before  the  war  has  been  96  per  cent,  and  the  increases 
in  the  prices  of  almost  all  railway  materials  and  equipment 

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have  been  from  100  to  200  per  cent.  Government  reports 
indicate  that  the  increases  in  the  prices  of  all  the  principal 
commodities  that  enter  into  the  cost  of  living  have  averaged 
abont  100  per  cent.  After  the  proposed  advances  had  been 
made  railway  rates  would  be  lower  in  proportion  to  general 
wages  and  prices  than  before  the  war. 

WHAT  THE  WESTERN  LINES  ARE  ASKING 

In  western  territory  the  net  operating  income  of  the  rail- 
ways has  not  declined  so  much  since  pre-war  days  as  in 
the  other  parts  of  the  country,  and  therefore  the  western 
lines  are  now  asking  for  an  advance  in  freight  rates  of 
24  per  cent.  Four  years  ago — in  1916 — these  railways' 
earned  $460,000,000  net  operating  income,  or  an  average  of 
5!|  per  cent  upon  their  property  investment  at  that  time. 
The  amount  of  net  operating  income  required  to  yield  6 
per  cent  upon  their  present  property  investment  account 
is  about  $538,000,000.  I call  your  attention  to  the  fact  that 
the  net  operating  income  which  they  are  asking  the  Inter- 
state Commerce  Commission  to  allow  them  to  earn  is  but 
$78,000,000  more  than  they  actually  did  earn  in  1916,  and 
that  one-half  of  this  additional  $78,000,000  is  needed  to  pay 
a return  upon  additional  investment  which  has  been  made 
in  their  properties  since  1916.  Only  the  remaining  $39,000,- 
000  is  being  sought  to  enable  them  to  earn  a higher  rate 
of  return  than  they  earned  four  years  ago. 

In  view  of  the  great  changes  which  have  occurred  in  finan- 
cial conditions  since  four  years  ago,  and  especially  the  great 
increases  which  have  taken  place  in  interest  rates,  is  it  not 
obvious  that  these  western  lines  should  be  allowed  to  earn 
a higher  rate  of  return  than  they  earned  four  years  ago, 
and  that,  indeed,  they  must  be  allowed  to  earn  a higher  rate 
of  return  if  they  are  to  be  enabled  to  raise  large  amounts 
of  new  capital?  It  seems  to  me  the  judgment  of  business 
men  must  be  that  the  increases  in  their  net  operating  income 
for  which  the  railways  of  the  country,  and  especially  the 
western  lines,  are  asking,  are  very  reasonable,  and  that 


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there  is  much  more  danger  that  after  they  are  granted 
they  will  prove  insufficient  to  enable  the  railways  to  raise 
the  new  capital  they  need,  than  that  they  will  prove  more 
than  what  the  railways  will  need.  It  is  only  fair  to  say, 
in  this  connection,  that  the  advances  in  rates  for  which  the 
railways  are  asking  do  not  provide  for  any  further  advances 
in  wages,  and  that  if  the  Railroad  Labor  Board,  in  the 
proceedings  now  pending  before  it,  should  award  the  rail- 
way employes  further  advances  in  wages,  the  railways 
would  be  obliged  to  ask  for  advances  in  rates  in  addition 
to  those  for  which  they  are  now  asking. 

In  my  opinion,  the  decision  of  the  Interstate  Commerce 
Commission  in  this  rate  case  will  largely  determine  the 
future  development  of  our  railways,  and  thereby  the  future 
development  of  our  country,  and  its  natural  resources  for 
years  to  come,  because  the  country’s  natural  resources  can 
be  developed  and  its  production  can  be  augmented  only  in 
proportion  as  it  is  provided  with  means  of  transportation. 
The  railways  cannot  be  adequately  developed,  and  they  can- 
not render  adequate  and  satisfactory  service  under  private 
ownership,  unless  they  are  allowed  to  earn  a net  return 
sufficient  to  raise  the  vast  amounts  of  capital  that  are  re- 
quired to  increase  the  capacity  of  the  existing  lines  and  to 
build  the  new  lines  which  the  welfare  of  the  country  de- 
mands. 


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